SEC Reduces Risks For Broker-Dealers Such As Coinbase

It seems that the SEC reduces risks for the broker-dealers in the crypto market, such as Coinbase, adding clarifications on how these entities can swap customer assets as we are about to find out more in the latest Coinbase news.

The letter from the SEC to FINRA clarifies in what order and under what conditions can the crypto broker-dealers swap digital assets. The letter makes it easier and less risky for businesses such as Coinbase to conduct crypto swaps. There are a lot of unanswered questions for a complete regulatory framework but it’s a start.

The SEC reduces risks for companies like Coinbase after it clarified how custodial broker-dealers can legally exchange digital securities on crypto exchanges without the SEC recommending enforcement action against them. Broker-dealers are licensed financial entities in the United States that are authorized to buy, hold, sell, and trade assets on behalf of their customers. The ruling should make it easier and less risky for these entities to trade digital assets on behalf of the customers.

The SEC’s letter to FINRA signed on Friday and addresses to a VP, clarified that the broker-dealers like Coinbase can easily swap between crypto assets on behalf of customers in a three-step process. At first, the customers can authorize trades with specific conditions like prices and amounts, then the broker-dealer custodian executes these trades and at last they inform the customer after the fact. Under previous guidance, the SEC laid out a Joint Staff Statement back in 2019 where the customers would submit their trades and then had to wait for an exchange counterparty on behalf of the entity. Once the exchange found a march, the broker-dealer custodians will have to request confirmation from the customers before finishing the final transaction.

/10 OK, what does this mean? #bigpicture 1. It got easier to trade digital asset securities. 2 BDs have certainty as to how to trade digital asset securities. 3. Custodians are even MORE important.

— Drew Hinkes (@propelforward) September 26, 2020

The SEC’s letter said it’s ok for customers that are seeking to swap between digital assets to submit trade orders and confirmations at the same time rather than independently. The clarification will make platforms like Coinbase more secure against the SEC allowing customers to use the service with confidence. Other conditions apply as well for executing customer trades including holding the reserves of $250,000 in net capital. Drew Hinkes however, the attorney at the US law firm Carlton Fields tweeted that it is difficult for the broker-dealers to determine which crypto assets are legal to trade in the first place.